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20 tonne tankers at the moment they are producing around about 300 tonnes of sweets a week

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16y ago

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What is spot delivery contract and forward delivery contract?

A spot delivery contract really isn't much of a contract. You're a baker who needs sugar--you buy futures contracts but you've been hit with a huge order for cookies and you don't have enough sugar on hand to deal with the problem. Normally you'll have a line of credit established with a sugar company for just such occurrences. To make a spot contract, you call the sugar company and ask them to bring you a truckload of sugar. It shows up, you get the bill at the end of the month, all is well. That's a spot contract. A forward delivery contract is for the sugar farmer. You have 500 acres of sugar beets. You have no idea of the exact tonnage of beets you are going to harvest or the exact date the harvest will be. To help manage your risk, you make a contract with a sugar refinery to sell them your whole crop when it is harvested for a specified price per ton.


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How does a commodities future differ from buying a commodity outright?

Buying the commodity outright would be considered "Buying Actuals", where as a commodities futures contract is a contract for "Future Delivery." For example, let's say that you decide to go into the chocolate cake business. One of your business issues would be the price /cost of cocoa and sugar today. In that case you would buy "Actuals" - i.e. you would by the actual sugar and cocoa for use today. However, another issue is that you will need sugar and cocoa next month, and the month after etc, etc. Now you might just go ahead and buy a warehouse, and store your sugar and cocoa, but a better alternative would be to "Lock In" at a price that you could work with by "Buying Futures." Buying futures is making a purchase today for future delivery. The benefit of buying futures is that you now have price stability - you own that contact for delivery, and that now storage, insurance and interest are non factors as they are now built into your purchase price (these are known as carrying costs, or carrying charges.) So in essence buying today for delivery today is buying actuals where as buying futures is purchasing a contract for delivery on a future date.


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